Some of the best data I can find indicates there are 1,821,745 households that have investment portfolios valued at $3,000,000 or more1. This means roughly 1 out of every 63+ households. This group contains:

893,344 households with $3,000,000 to $5,000,000

679,242 households with $5,000,000 to $10,000,000, and

249,159 households with $10,000,000+

When the nation’s largest trust company, U.S. Trust, went to study those who make the rankings in an annual publication called Insights on Wealth and Worth [PDF or website], it found that the “vast majority (94%) … say they have a clear purpose in life. Three-quarters (75%) agree that their life’s purpose would not change even if they were to lose their wealth”. As a whole, the group is obsessed with maintaining good health – looking at other data sets, this makes sense given those in the group, relative to the general population, are far less likely to smoke, drink in excess, be overweight, or have children out of wedlock. A disproportionate percentage of the list either owned their own business or worked as a corporate executive, but this isn’t a surprise if you’ve examined the Federal Reserve data; business owners, as a class, have net worth figures that are many, many, many times the rest of the population as a good operator is able to create value not only from the profit component but the capitalized value of those profits when and if he or she goes to sell the business. (There’s a degree of self-selection here because if you are not talented enough to run a business, you fail and lose everything, removing you from the data pool. And a lot do fail, though there are some problems with the headline figures people repeat without thinking.)

Guess what else? As per all of the other data I’ve ever seen, stealth wealth rules the day. Barely more than 1 out of 3 households have fully disclosed their wealth to their children; the kids and grandchildren have no idea how rich the investors have made themselves. Specifically:

17 out of 100 have offered no disclosure at all,

47 out of 100 have offered only a little bit of disclosure, and

36 out of 100 have provided full disclosure.

That’s a whole lot of people who have no idea they are going to be on the receiving end of a boatload of wealth, provided charity doesn’t get it. The United States of America is full of people like Phyllis Stone, wearing frumpy house dresses, driving beat-up Chevy Cavaliers, and living in normal houses as their tens of thousands of shares of Exxon Mobil pump out six-figures in annual dividend income or, in some cases, successful executives and doctors who have no doubt done well, but haven’t let on how well.

When U.S. Trust asked its sample group the reasons they were so secretive about their money,:

34 out of 100 said, “I am concerned it will negatively impact their work ethic”

20 out of 100 said, “I was taught never to discuss wealth”

19 out of 100 said, “I am concerned they will discuss it publicly outside the family”

17 out of 100 said, “My child/ren aren’t mature enough to handle it”

15 out of 100 said, “I never thought about it”

5 out of 100 said, “My child/ren aren’t old enuogh”

6 out of 100 said, “I don’t know how to bring it up”

Perhaps, then, it isn’t surprising that the Williams Group wealth consultancy found that a whopping 70 out of 100 wealthy families will lose their wealth by the second generation and an almost unbelievable 90 out of 100 will have dissipated it by the third generation. One of the consequences of this winner-take-all meritocracy that has been unleashed by the rise of the microchip and globalization increasing productivity is what others have called the “high beta rich”; that we are now a nation of the self-made, with inheritance and “old money” becoming less and less important than it has ever been at any time in the history of not just the United States but of human civilization. Even the Forbes 400 list of the richest Americans hit an all-time high for the percentage of billionaires who are self-made, whereas when the list was first compiled decades ago in the 1980’s, it was mostly aristocratic families like the Rockefellers and DuPonts. The blue bloods are dead. Long live the entrepreneurs.

Most of the data I’ve seen roughly approximates the breakdown on this Forbes page … around 70% of assets are accumulated in the current generation through business ownership, 25% are generated from high-income occupations, such as becoming a doctor, and 5% originates from inheritance. If you ever hear someone talking about how the rich in America are that way because of the silver spoon they were given at birth, know that you’re listening to someone who is living in a fantasy world. It hasn’t been true for decades. That economy is dead and gone.

The representative sample also held significantly higher cash reserves than typical investors:

8 out of 100 held 50% or more of their portfolios in cash

14 out of 100 held 25% to 50% of their portfolios in cash

40 out of 100 held 10% to 24% of their portfolios in cash

38 out of 100 held less than 10% of their portfolios in cash

The last group isn’t much of a surprise because there’s some research I’ve been reading lately indicating that there are a lot of high net worth individuals living paycheck to paycheck in the United States due to a propensity to over invest. Though not a perfect overlap in demographic, the paper I’m currently reading, written by Greg Kaplan at Princeton University, Giovanni L. Violante at New York University, and Justin Weidner at Princeton University, deals with it. It’s called The Wealthy Hand-to-Mouth [PDF].

It’s always odd to try and fit your life story into a few lines but here is the short version: My name is Joshua Kennon. I’m 35 years old. My husband, Aaron, and I met and fell in love as teenagers. After graduating from high school together, we moved from the Midwest to the East Coast where we studied classical music and a wide range of liberal arts. Later, we returned to the Kansas City area to be near family.

During our early twenties, we started several internet companies. We spent much of the next decade semi-retired and managing our own wealth thanks to the financial independence those businesses helped us achieve. I also wrote a lot during this time. In fact, the odds are good that you’ve directly or indirectly encountered me many times without realizing it. For nearly 17 years, I was the Investing for Beginners Expert at what was then known as About.com. I am the co-author of The Complete Idiot’s Guide to Investing, 3rd Edition.

Recently, Aaron and I came out of retirement to launch Kennon-Green & Co., a global asset management firm that specializes in value investing for affluent and high net worth individuals, families, and institutions. These days, we spend our time running and growing the firm, as we plan on it being the institution through which we pass on our own family’s wealth to our future children and grandchildren. The experience, particularly meeting such incredible people, has been one of the most rewarding of our lives. It’s a rare thing to have a career that allows you to not only do what you love for a living, but to do it with people you admire, respect, and like. We feel like two of the most blessed guys in the world.

This personal blog is a place where I talk about some of the things that interest me – cooking, finance, entrepreneurship, politics, history, economics. I’m really proud of the community we’ve built, in no small part because the typical reader around here is exceptional.

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